11/14/2015Laudon & Laudon1 Information Systems and Business Strategy Chapter 3 (10E)

04/20/23 Laudon & Laudon 1

Information Systems and Business Strategy

Chapter 3 (10E)


Organization of the IS Function

• Typical firm has a unit called the IS department who are responsible for IT services

• Members of the IS department– Programmers– System analysts– Project managers– CIO– Database administrators– Network administrators– Chief information officer

• End users (users of IS services outside the IS department)


How IS Impact Organizations

• Economic theories– IS/IT enables firms to lower their transaction costs

and increase revenues with fewer employees (transaction cost theory)

– Agency theory suggests that IS/IT enables firms to reduce management costs and increase revenues

• Behavioral theories– IS/IT has moved decision-making to lower levels of

management and managers make decisions faster because information is readily available

• Post-industrial theories– Also support flattening of hierarchies, but reasons

are that authority arises from knowledge and competence rather than formal positions; knowledge workers tend to be self-managed; task force organization


How IS Impact Organizations (cont)

• Increasing flexibility as evidenced by ability of orgs to respond to changes and take advantage of new opportunities– Improved communication

– Separation of work and location

– Mass customization

– Data-mining

– The Internet



• The Internet and Organizations

– The Internet increases the accessibility, storage, distribution of information and knowledge for business firms.

– The Internet lowers the transaction and agency costs of firms.

– Businesses are rapidly rebuilding their key business processes based on Internet technology. Example: online order entry, customer service, and fulfillment of orders.



• Organizational resistance to change

– Information systems become bound up in organizational politics because they influence access to a key resource (information).

– Information systems potentially change an organization’s structure, culture, politics, and work.

– Most common reason for failure of large projects is due to organizational and political resistance to change.


IS and Business Strategy

• Business strategy determines

– The products and services a firm produces

– The industries in which the firm competes

– Competitors, suppliers, and customers of the firm

– Long-term goals of the firm

•The Role of Information Systems in Business Today

• How information systems are transforming business

• Globalization opportunities

• The emerging digital firm

• Strategic business objectives of information systems• Operational excellence

• New products, services, and business models

• Customer and supplier intimacy

• Improved decision making

• Competitive advantage

• Survival

•Management Information SystemsManagement Information Systems•Chapter 1 Information Systems in Global Business TodayChapter 1 Information Systems in Global Business Today


Porter’s Value Chain Model

• The value chain model looks at a business in terms of a set of primary and support activities that add value to the firm’s products or services.

• VC model can be used to determine where information systems can have the most impact to effect the competitive position of the firm

• Firm gains a competitive advantage when it provides the product or service with more value or the same value at a lower price


Management Information Systems 8/eManagement Information Systems 8/eChapter 3 Information Systems, Organizations, Management, and StrategyChapter 3 Information Systems, Organizations, Management, and Strategy

INFORMATION SYSTEMS AND BUSINESS STRATEGY


Primary Activities of the VC Model

• Inbound logistics - receiving and storing of materials

– Wal-Mart’s continuous replenishment system

– stockless inventory systems

• Operations - transformation of inputs to finished goods or the process of providing a service

– computer controlled machinery used by Gillette for producing razor blades

• Outbound logistics - storing and distributing the product

– airline reservation system

– automated shipping scheduling systems


Primary Activities of the VC Model (continued)

• Sales and marketing - promoting and selling the firm’s product

– industrial air conditioning firms provide computer-based modeling systems to help architects determine cooling requirements for commercial properties

– Otis elevator uses sensors in its equipment that automatically notify service centers before malfunctions occur


Support Activities for the VC Model

• Administration and management

– voice mail and e-mail, intranets

• Human resources

– employee skills database, systems that facilitate compliance with government regulations

• Technology development - improving products and the production process

– an oil company uses infrared data gathered by satellite to search for oil deposits

– CAD systems


Support Activities for the VC Model (continued)

• Procurement (purchasing inputs)

– on-line electronic auctions exist that provide access to excess inventory

– retailers use on-line systems to access the inventory files and production schedules of their suppliers


Four Strategies Used With the Competitive Forces Model

• Product differentiation involves developing new and unique products and services not easily duplicated by competitors

• Becoming the low-cost producer (provide same value but at a lower cost than competitors)

• Focused differentiation involves – Narrowing the market by developing niches for specialized products

or services where a business can compete better than its rivals– Use of customer data (data mining, credit card transactions, Internet

behavior)• Strengthen customer and supplier intimacy

– Use IS to develop strong ties with customers and suppliers (SCM and CRM are major tools in this area)


Business Strategies for Digital Firms

• Today digital firms view their value chain as part of a larger chain – the firm’s value chains is linked to the value chains

of their suppliers through SCM systems; Wal-Mart’s (inventory replenishment)

– the firm’s value chain is linked to the value chain of their customers (efficient customer response systems)

• The concept of switching costs and locking customers in


Competitive Forces Model

THE FIRMTRADITIONAL COMPETITION

NEW MARKET ENTRANTS

SUPPLIERS CUSTOMERS

SUBSTITUTE PRODUCTS & SERVICES


Four Strategies Used With the Competitive Forces Model

• Product differentiation involves developing new and unique products and services not easily duplicated by competitors

• Becoming the low-cost producer (provide same value but at a lower cost than competitors)

• Focused differentiation involves – Narrowing the market by developing niches for specialized products

or services where a business can compete better than its rivals– Use of customer data (data mining, credit card transactions, Internet

behavior)• Strengthen customer and supplier intimacy

– Use IS to develop strong ties with customers and suppliers (SCM and CRM are major tools in this area)


Examples of Systems for Each Strategy

• Product differentiation– Levi Strauss’ s Personal Pair (mass customization or

one-to-one marketing)– Hallmark’s computer generated cards– Build to order products (Dell)

• Focus (market niche)– Customer data analysis through CRM– Harrah’s case and Wyndham Hotels

• Low cost producer– CAD systems used in the automobile or airline

industry– Insurance claim adjusters use of pen-based

computers


Competitive Forces Model and the Internet

• Substitute products/services

– Online banking, stock trading, reservations, online music

• Customer’s bargaining power

– Availability of pricing information (kbb.com)

– Expansion of options (expedia.com, pricegrabber.com)

• Supplier’s bargaining power

– Procurement over the Internet raises bargaining power of customer

– Suppliers benefit from reduced barriers to entry and elimination of intermediaries (alibaba.com)


Competitive Forces Model and the Internet (continued)

• Threat of new entrants– The Internet has reduced barriers to entry such as

the need for a sales force, access to channels, and physical assets

• Rivalries among existing competitors– Widens the geographic market– Increases number of competitors– Reduces differences among competitors– Pressure to compete on price


Network Economics

• The network economics concept is that the marginal cost of adding another participant are near zero, but the marginal gain is much larger

• Building communities of users through the Internet

– Microsoft’s developer’s network

– Microsoft’s attempts to place selected companies on the opening page of their browser

– the airlines use of electronic mail to inform customers of excess capacity


Management Opportunities and Challenges

• Opportunities

– Firms face a continuing stream of IT-based opportunities to achieve strategic advantages

• Challenges

– Some firms face big hurdles in implementing contemporary systems; resistance to change.

– Once an advantage is achieved, there are difficulties in sustaining the advantage.

– Organizations often cannot change fast enough to accommodate new technologies (Kodak).


Solutions: What Managers Can Do

• Managers cannot depend on IS professionals to tell them about strategic opportunities

• Managers must understand what is happening in their industry in general and the role of technology in particular

• How do you do this?


Solutions: Questions to Ask

• Perform a strategic systems analysis

– Understand the structure and competitive dynamics of the industry where your firm operates

– Understand the business, firm, and industry value chains


Summary Thoughts

• Decreasing costs of IT means IT is available to all firms

• Competition hinges on the creative use of IT since all competitors have access to IT

• Employees who understand IT and can use it in creative ways have high value

• Innovation and creative use of IT is increased by increasing the number of IT-knowledgeable employees

• Individualizing competitive advantage or how do you contribute to the competitive advantage of your firm?


Strategic Option Generator (Wiseman)

• Target

– Supplier, customer, competitor

• Thrust

– Differentiation, cost, innovation, growth, alliance

• Mode

– Offensive or defensive

• Direction

– Internal users, external users, or both

• Execution

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11/14/2015Laudon & Laudon1 Information Systems and Business Strategy Chapter 3 (10E)

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